INSIGHTS    AUGUST 2020

Political Risk Map 2020:

Mid-Year Update
COVID-19 Sharply Increases Economic Risks
INSIGHTS    AUGUST 2020

Political Risk Map 2020:

Mid-Year Update

CONTENTS

2 Introduction

3 Economic Impact
5 Protests and Government Instability

6 Political Risk Map 2020: Mid-Year Update

8 Regions

8  Asia-Pacific
11  Middle East and Africa
15 Americas

19 About This Report

Marsh • 1
Introduction
COVID-19 has complicated an already volatile political risk landscape. Despite a focus
on the pandemic, the geopolitical flashpoints that we highlighted in March 2020 have
not gone away. In the coming months, many may be intensified by the pandemic, as
some governments seek to distract from domestic issues by ramping up foreign policy
assertiveness, bringing a risk of violent confrontation.

The pandemic’s economic and social impacts are driving Outside of the US-China rivalry, recent months saw a Sino-
significant shifts in global political risk — introducing new Indian confrontation in the Himalayas in which at least 20
dynamics and accelerating existing geopolitical megatrends, troops were killed. Tensions on the Korean peninsula also
such as trade protectionism and the transition to a multipolar look set to rise, with North Korea severing communication
world order. The deepening Sino-American rivalry has lines with the South and blowing up a joint liaison office in
accelerated since the onset of COVID-19. The politicization June 2020.
of trade and investment relationships has extended to public
health, with leaders in both countries routinely blaming the International focus on COVID-19 may also be masking
other for the pandemic. simmering tensions between Iran and the US. Relations
between the two countries remain weak, following the
Cooperation between China and the US on the pandemic has January 2020 US drone strike that killed a leading Iranian
been weak, and tensions have risen over Hong Kong SAR, general. In July, two US fighter jets approached an Iranian
Taiwan, and the South China Sea. Our expectation that tech passenger plane in Syrian airspace, and days later Iran’s
firms will be increasingly caught in the crossfire is playing out, revolutionary guards fired a missile at a replica aircraft
while countries find themselves under geopolitical pressure to carrier in the Strait of Hormuz.
choose sides. In July 2020, the UK government announced that
Chinese firm Huawei’s technology would be banned from its 5G
networks. As the US presidential election approaches, relations
are likely to deteriorate further.

2 • Political Risk Map 2020: Mid-Year Update

Economic Impact The pandemic is likely to drive rising sovereign credit risks in
the coming quarters. Many countries have deployed extensive
Since January 2020, all 197 countries rated by Marsh JLT fiscal stimulus packages to support the private sector, fund
Specialty’s World Risk Review have seen their country economic additional health care spending, and invest in a post-COVID
risk increase, compared to just 60 countries in the same period recovery, all at a time of reduced government revenues. For
in 2019. Moreover, risk ratings have increased by a larger many EMs, this will weigh on debt sustainability. In the first half
magnitude compared to the same period last year. of 2020, one-third of Moody’s sovereign ratings actions related
to COVID-19, and all downgraded sovereigns were EMs.
Between January-July 2019, 97% of the economic risk ratings
that increased did so by between 0.1 and 0.4, compared to just
7% in 2020 (see Figure 1). In 2020, 40% of ratings increased
by between 1 and 1.4. No scores rose by this magnitude in
January-July 2019.
Countries that entered the
crisis with weaker fundamentals
The International Monetary Fund (IMF) forecasts that the global
economy will shrink by 4.9% in 2020. With many governments are likely to face deeper
looking to ease lockdown measures, attention is focused on the
shape and size of an economic recovery. economic scars.
An economic recovery is difficult to forecast, given the
significant uncertainty over governments’ ability to contain
and manage COVID-19, particularly without a vaccine. Recent
weeks have exposed these challenges. While economic data
from Europe showed a tentative move toward recovery, fears of
a second wave of infections may yet undermine momentum. As
a result, the post-COVID recovery is likely to be uneven across
countries and sectors. Countries that entered the crisis with
weaker fundamentals are likely to face deeper economic scars,
while those able to deploy large fiscal packages and effectively
manage the virus are best placed for recovery.

Trade tensions are also likely to amplify, if or when a global economic

recovery takes hold. The drivers of increased trade protectionism
remain in place, and are likely to be exacerbated by deteriorating
US-China relations during the pandemic. The Phase One trade
deal reached between the two states is at risk of being abandoned,
posing risks to a post-COVID recovery in global trade volumes.

With some exceptions, emerging markets (EMs) will benefit from

a recent return to stability in global financial markets, allowing
most of them to avoid the severe balance of payments pressures
caused by rapid capital outflows. However, long-term debt
sustainability in many EMs will be weakened by the pandemic,
as governments deploy additional spending and weak economic
activity drags on revenues. In some cases, such as South Africa,
COVID-19 has exacerbated existing weaknesses in public
finances, while the simultaneous drop in global commodity
prices has also hit many oil-producing nations.

Strained government finances could also push some governments

to seek alternative sources of revenues, possibly leading to
contract alterations or expropriation in more profitable sectors.
Regulatory changes may look to increase government royalties,
potentially weakening operating environments.

Marsh • 3
 FIGURE The number and magnitude of economic risk changes in the first half of 2020 far
1 exceeded those in the first half of 2019.
SOURCE: MARSH JLT SPECIALTY WORLD RISK REVIEW

Percentage of Country Economic Risk Rating Changes, January-July.

Magnitude of Country Economic Risk Rating Changes, January-July.

4 • Political Risk Map 2020: Mid-Year Update

Protests and Government In the first half of 2020, the pandemic was accompanied in
many countries by a renewed focus on racial inequality and
Instability injustice, following the death of George Floyd and others in
the US, leading to a wave of protests and demonstrations.
National lockdowns, curfews, and the health risks posed by Polling by the Kaiser Family Foundation in June 2020
COVID-19 have limited the risk of civil unrest in recent months. estimated that as many as 26 million people participated in
The pandemic’s onset largely froze existing protest movements, demonstrations in the three months to June 2020, making it
with the risk of disruptive protests falling in places like Chile and the largest movement in US history.
Hong Kong SAR. However, the underlying drivers of unrest in
many economies — declining standards of living, inequality,
and corruption — remain, and in many cases may be exacerbated
by the pandemic’s economic impact. As lockdown measures
ease, some protest movements will probably resume, as new Pre-existing tensions will
motivations for demonstrations emerge.
be exacerbated by growing
Pre-existing tensions will be exacerbated by growing scrutiny
of governments’ handling of COVID-19. Those perceived to
scrutiny of governments’
have failed to effectively manage the pandemic could face
anti-government protests, increasing the risk of instability.
handling of COVID-19.
There is a growing risk of disruptive protests in response to the
reintroduction of containment measures, as willingness to comply
with restrictions wanes. In July 2020, for example, Serbia faced a
wave of unrest following government plans to reintroduce weekend
curfews and criticism of the government’s handling of the crisis.

Marsh • 5
 FIGURE COVID-19 sharply increased economic risks globally.
2 SOURCE: MARSH JLT SPECIALTY WORLD RISK REVIEW

Svalbard
(Norway)
Greenland
(Denmark)

Alaska (US)

Russia
Finland

Canada Iceland
Norway Sweden
Faroe Islands
(Denmark)

Estonia
Latvia
United Denmark Lithuania
Kingdom Kaliningrad (RU)
Isle
of Man
Belarus
Ireland Poland
Netherlands Germany
Belgium Mongolia
Czech Rep. Ukraine Kazakhstan
Luxembourg
Slovakia
Austria
France Liechtenstein Hungary Moldova
Switzerland Slovenia
Croatia Romania North Korea

United States of America Andorra

Italy Bosnia Serbia
and Herz.
Montenegro Kosovo
Bulgaria
Georgia
Uzbekistan
Kyrgyzstan

South Korea
Japan
North Macedonia
Portugal Albania Armenia Azerbaijan Tajikistan

China
Spain Turkmenistan
Greece Turkey

Cyprus Syria Afghanistan

Bermuda Malta
Lebanon
Morocco Tunisia
Israel Iraq Iran
Madeira Gaza West Bank
(Portugal) Pakistan
Jordan Nepal Bhutan
Hawaii (US) Mexico Canary Islands Kuwait
Taiwan
(Spain)
Algeria
The Bahamas Libya
Bahrain Bangladesh Macao SAR
Egypt Qatar Hong Kong SAR
Cuba Dominican Western Saudi Arabia United
India
Myanmar
(Burma)
Arab Emirates
Republic Sahara Laos
Haiti Puerto Rico
Belize Jamaica (US) Oman
Guatemala Thailand
Honduras Mauritania Guam (US)
Vietnam
El Salvador Mali Niger Philippines
Nicaragua Aruba Cabo Verde Sudan Eritrea Yemen Cambodia
Senegal Chad
Micronesia
Costa Rica The Gambia Andaman and
Panama Trinidad and Tobago Burkina Faso Djibouti
Nicobar Islands Kiribati
Guinea-Bissau (India)
Guinea
Venezuela Benin Somalia Sri Lanka Brunei
Kiribati Sierra Côte Togo Nigeria
Guyana
Leone d'Ivoire Ethiopia Malaysia
Colombia Suriname Ghana Central African South Sudan
Galapagos Islands Liberia Republic Singapore
French Guiana Cameroon
(Ecuador) Bioko (Equatorial Guinea)
Maldives
Ecuador
Equatorial Guinea
Sao Tome
and Principe Gabon
Congo Democratic
Uganda
Kenya
Indonesia Papua New Guinea Solomon Islands
Tuvalu

Republic Rwanda
of the Congo
Burundi Seychelles Timor-Leste
Peru Cabinda (Angola)
Tanzania Samoa
Vanuatu
Brazil Comoros Fiji Tonga
Angola Mayotte (France)
Malawi Mozambique
Bolivia
Country Economic Risk Index Zambia
New Caledonia (France)

Australia
Madagascar
Zimbabwe Mauritius
<2.1 2.1–4 4.1–6 6.1–8 8.1–10 No Data Paraguay Namibia Reunion (France)
Botswana
Low Risk High Risk
Eswatini

Based on data from the Marsh JLT Specialty's World Risk Review platform. Argentina
Uruguay
South Africa
Lesotho

Chile

New Zealand

Falkland Islands (UK)

6 • Political Risk Map 2020: Mid-Year Update Marsh • 7

Asia-Pacific
As the region hit first by COVID-19, many countries in Asia-
Pacific experienced a sharp rise in economic risk early in the FIGURE China’s economic risk and risk of
year. Almost two-thirds (64%) of the countries rated by Marsh JLT
Specialty’s World Risk Review experienced an increase in their
country economic risk rating of more than 1, between January
3 war and civil war saw the most
change in Jan-Jul 2020.
and July 2020. In the same period in 2019, no country posted SOURCE: MARSH JLT SPECIALTY WORLD RISK REVIEW
a rise of this magnitude. Only 23% of countries posted any
increased economic risk.1
China’s Country Currency
Risk Ratings Inconvertibility
and Transfer Risk
While states such as China, South Korea, and Vietnam have 10

Country
received praise for their domestic handling of the COVID-19, Economic
9

8
Sovereign
Credit Risk
others have struggled to bring it under control. Despite an early Risk 7

6
lockdown, cases in India continue to rise, contributing to one of 5

the largest increases in economic risk in the region (1.4). 4

3
War and
2 Expropriation
Civil War 1

Below, we provide an update on the region’s largest economies,

China and India, along with Vietnam, a country that may benefit
in the long term from other countries’ likely efforts to reduce
Contractual
their dependency on Chinese manufacturing. Terrorism Agreement
Repudiation

China Strikes, Riots,

and Civil
Legal and
Regulatory
Commotion Risk
Having been largely successful in containing COVID-19’s
domestic spread, President Xi Jinping’s domestic authority
appears mostly unscathed from the pandemic. His position is Jan-20 Jul-20
likely to remain secure, provided the government can deliver an
economic recovery and prevent or minimize a second wave.

1 All risk ratings referenced in this report were produced by Marsh JLT Specialty’s World Risk Review. The country economic risk rating indicates the
propensity for economic adjustment, including significant devaluation and/or high inflation and increases in the level of credit defaults among
domestic businesses. The country economic risk peril index assesses the risk of economic instability, and the potential effects this may have on
businesses operating in the country or territory.

8 • Political Risk Map 2020: Mid-Year Update

COVID-19 significantly weakened China’s economic
performance in the first quarter of 2020. Its real GDP FIGURE India’s economic risk rating
contracted 6.8% year-over-year, as national lockdown
measures significantly affected the secondary and tertiary
sectors. Reflecting these challenges, China’s country economic
4 increased steeply in Jan-Jul 2020.
SOURCE: MARSH JLT SPECIALTY WORLD RISK REVIEW
risk rating increased by 0.6, from 3.6 to 4.2, between January
and July 2020 (See Figure 3). India’s Country Currency
Risk Ratings Inconvertibility
and Transfer Risk
However, China is emerging from COVID-19, and domestic demand 10

Country 9
is recovering. In June 2020, industrial profits rose by 11.5% year- Economic 8
Sovereign
Risk Credit Risk
over-year, the quickest growth in profit since March 2019. 7

4
China’s full-year GDP growth is forecast at 1.6% in 2020. It is War and 3
Expropriation
forecast to rebound in 2021, at 7.4%, but growth will be uneven Civil War 2
1

across sectors as containment measures remain in place and

the international trade landscape remains complex.
Contractual
COVID-19 has not altered the long-term trend of deepening Terrorism Agreement
Repudiation
military, political, and economic tensions between China
and the US. Indeed, relations appear to be deteriorating at
an accelerated rate, and this will be the key trend in Chinese Strikes, Riots, Legal and
and Civil Regulatory
foreign affairs through the remainder of 2020. Commotion Risk

Hong Kong SAR, the South China Sea, Taiwan, and technological
Jan-20 Jul-20
competition are all potential flashpoints in the two countries’
relations. For example, on May 27, 2020, US Secretary of State Mike
Pompeo announced that the US believed that Hong Kong SAR was
no longer autonomous from China, given China’s application of new
national security laws on behalf of Hong Kong SAR. India
The US subsequently introduced the Hong Kong Autonomy Despite implementing a nationwide lockdown in March 2020,
Act (HKAA), which imposes sanctions on banks that do India has been one of the countries most affected by COVID-19.
business with Chinese officials who are involved in violating India’s early lockdown closed large parts of the economy. Even
Hong Kong SAR’s constitution. as measures have relaxed, the Indian economy faces a severe
contraction over the next 12 months, particularly in the services
sector, where domestic and international demand has collapsed.
In July 2020, the US additionally introduced sanctions on senior
The service sector is the key driver of India’s economic growth,
Chinese officials for their role in alleged human rights abuses in
contributing 54% of GDP in 2018-2019.
Xinjiang, and declared Chinese activity in the South China Sea
unlawful. Escalating measures taken by both sides will increase
the risk that the Phase One trade deal reached in January 2020 The country’s GDP is forecast to contract by 4.5% in 2020-21.
will be repealed in part or in full. The economic impact will be deeper if the pandemic cannot be
brought under control in the second half of 2020. As a result,
India’s country economic risk rating increased by 1.4, from 3.5 to
External relations with other Western economies may also
4.9, in the first seven months of 2020 (see Figure 4).
be strained in 2020, as states increasingly choose sides in
Sino-American confrontations. With China’s international
reputation also weakened in some quarters by the pandemic, India’s political stability is likely to endure in 2020, however.
many will prioritize relations with the US, particularly on Prime Minister Narendra Modi occupies a secure position,
technology. In July 2020, the UK announced a ban on the use with sufficient support to pass legislation. His mandate should
of Huawei technology in 5G mobile networks. Other countries not be weakened significantly by COVID-19, given that state
may yet follow suit. For example, Germany is expected to governments are largely responsible for handling public health.
make a decision on continued use of Huawei technology in Nevertheless, this does increase the likelihood of disputes
the autumn. between state and central government.

Marsh • 9
Currency inconvertibility and transfer risk has steadily increased
in India since the beginning of 2020, its risk rating rising from
Vietnam
3.9 to 4.2 in the year to July 2020. The exchange rate (INR/USD) COVID-19 is unlikely to weaken materially Vietnam’s political
has depreciated by 7% since January 2020, driven by emerging stability in 2020. The government has been praised by the
markets’ risk-averse sentiment. international community for its handling of the pandemic,
recording a relatively small number of cases and deaths. The
Record capital outflows from India occurred amid the pandemic. country moved early to introduce travel restrictions, school
Between March and April, India had the third-largest capital closures, and contact tracing.
outflows among Asian markets: Foreign institutional investor (FII)
outflows totaled USD17 billion (debt and equity). This was higher Alongside the absence of an effective political opposition, this
than the FII outflows for the whole of 2019 (USD11 billion). The success is likely to boost the position of the ruling Communist
Indian rupee will continue to weaken in the next three months Party of Vietnam. Although Vietnam is expected to change
and average INR77.0/USD in 2020, from INR73.0/USD in 2019. leadership in 2021’s party congress, any incoming leader is
expected to maintain the country’s focus on pro-business and
External relations with China are likely to be challenging for the reformist policies.
remainder of 2020, following a border escalation between the
two counties in June. The clashes led to the deaths of 20 Indian The Vietnamese economy will continue to be negatively
military personnel, and contributed to an increase in risk rating affected by weak external demand among key trading partners,
from 4.6 to 4.7. driven by the pandemic. Vietnam’s economy relies heavily on
manufacturing goods for export, and supply chain disruption
Following the confrontation, without directly mentioning China, and collapsing consumer demand will weigh on the sector.
India banned 59 largely Chinese mobile applications, citing
national security concerns. Geopolitical rivalry in the Indo- Real GDP growth is forecast to slow to 1% in 2020. The country
Pacific region is likely to continue between the two countries in posted an estimated second quarter 2020 growth rate of 0.4%
the coming years, ensuring that interstate conflict risks remain year-over-year — the weakest since 2000. Reflecting these
moderately elevated. dynamics, Vietnam’s country economic risk rating increased
from 3.3 to 4.1 between January and July 2020 (see Figure 5).

However, in the long term, Vietnam’s economy is likely to benefit

FIGURE Vietnam’s contractual
5 agreement repudiation risk
increased most in Jan-Jul 2020.
from COVID-19’s impact on global trade dynamics. Many
manufacturers are expected to accelerate efforts to reduce their
dependency on Chinese manufacturing, generating opportunities
SOURCE: MARSH JLT SPECIALTY WORLD RISK REVIEW for Vietnam. The country should also benefit from the EU-Vietnam
Free Trade Agreement, which takes effect in August 2020.
Vietnam’s Country Currency
Risk Ratings Inconvertibility
and Transfer Risk
The main challenge for Vietnam will be managing the
10 bottlenecks that additional demand places on an aging
Country 9

Economic 8
Sovereign infrastructure system. Logistics costs are high in Vietnam,
Risk Credit Risk
7
given a lack of integrated services and automation.
6

3
Despite a small increase in its World Risk Review rating in
War and
Expropriation
Civil War 2
1
2020 to date (up from 3.4 to 3.7), the risk of expropriation or
nationalization of foreign investments in Vietnam will remain
manageable, reflecting the government’s desire to attract
investment. Investment in the power and renewable sector
Contractual
Terrorism Agreement is viewed by the government as crucial to powering the
Repudiation
manufacturing sector, which accounts for 17% of GDP.

Strikes, Riots, Legal and In June 2020, the National Assembly ratified a new Public-
and Civil Regulatory
Commotion Risk Private Partnership Law, the first of its kind in the country. The
legislation should provide greater certainty to infrastructure
investors, allowing for the establishment of public-private
Jan-20 Jul-20 partnerships in transport, power grids/plants, irrigation, water
supply, IT infrastructure, waste treatment, health, and education.

10 • Political Risk Map 2020: Mid-Year Update

Middle East and Africa
To date, Africa’s experience with the pandemic has not been as
intense as in Asia-Pacific, Europe, and the Americas. However, FIGURE Egypt saw the eighth-largest
the economic impact has still been large, particularly as
resource-dependent economies suffered from a simultaneous 6 increase in risk of strikes, riots,
and civil commotion.
drop in global prices, and tourism activity collapsed.
SOURCE: MARSH JLT SPECIALTY WORLD RISK REVIEW
Similarly, the Middle East has faced rising fiscal pressures as a
result of reduced oil revenues. Many governments across the Egypt’s Country Currency
region face particularly acute debt and fiscal pressures. Almost Risk Ratings Inconvertibility
and Transfer Risk
half (47%) of countries in the Middle East and Africa have seen 10

Country
their country economic risk rating increase by more than 1. Economic
9

8
Sovereign
Risk Credit Risk
7

The pandemic and its economic impacts are also contributing 5

4
to rising risks of civil unrest, as standards of living fall and 3
War and
governments cut social spending. Around half (52%) of countries Civil War 2
1
Expropriation

in the region experienced a rise in their strikes, riots, and civil

commotion rating between January and July 2020.

Contractual
We provide updates on political and economic risks in some of Terrorism Agreement
Repudiation
the region’s most important economies. South Africa, an early
adopter of lockdown measures, accounts for most cases in Sub-
Saharan Africa, exacerbating an already weak economic and Strikes, Riots, Legal and
and Civil Regulatory
debt environment. Commotion Risk

Although Egypt’s government is expected to maintain its hold

on power, the economic outlook is challenging, given a downturn Jan-20 Jul-20
in revenues from tourism, remittances, and the Suez Canal.
Weak performance in the oil sector is straining hard currency
availability in Nigeria.

Marsh • 11
Egypt FIGURE Nigeria’s economic risk rating
Egypt’s country economic risk rating increased from 4.7 to 5.4 in
January-July 2020 (see Figure 6). COVID-19 suspended activity in 7 increased by 1 in Jan-Jul 2020.
SOURCE: MARSH JLT SPECIALTY WORLD RISK REVIEW
economically crucial sectors. The demand side shock to tourism,
a decline in remittances, and loss of revenue from the Suez Canal
will cause growth to decelerate sharply in 2020. Nigeria’s Country Currency
Risk Ratings Inconvertibility
and Transfer Risk
GDP growth is set to slow to 2.5% in the fiscal year 2019/20, and 10

Country 9

3% in 2020/21 — a marked deceleration from the 5.6% growth Economic 8

Sovereign
Risk Credit Risk
7
rate recorded in 2018/19. 6

As in many emerging markets, COVID-19 caused sharp capital War and 3

2 Expropriation
outflows from Egypt in the first half of 2020, increasing Civil War 1

liquidity risk. At the peak of investor risk aversion, in March-

April 2020, capital outflows from Egypt totaled USD16 billion.
Contractual
Terrorism Agreement
The combination of capital outflows and greatly reduced Repudiation
economic activity placed significant pressure on the balance
of payments in the first half of 2020. However, as a net
oil importer, Egypt will benefit from lower energy prices, Strikes, Riots, Legal and
and Civil Regulatory
strengthening the country’s balance of payments position Commotion Risk
over the second half of 2020.

Jan-20 Jul-20
Egypt’s foreign-exchange reserves are probably sufficient to
avoid the introduction of capital controls or a run on the Egyptian
pound in 2020. Foreign reserves are worth 6.3 months of import
cover, up from 5.9 months of import cover in 2019. As a result,
currency inconvertibility and transfer risks have increased only
moderately, from 5.1 to 5.2.
Nigeria
Nigeria’s country economic risk rating increased from 5.3 to 6.3
Egypt also benefits from a USD5.2 billion loan under a 12-month in January-July 2020 (see Figure 7). The low oil price environment
standby agreement with the IMF, made in June. Egypt raised will compound COVID-19’s economic impact on the country.
USD5 billion in eurobonds in May, thereby increasing total Real GDP is forecast to contract by 3.5%.
foreign currency reserves to USD38.2 billion at the end of June
2020, up from USD36 billion at the end of May. Weakening global oil demand and declining domestic oil
production will weigh heavily on Nigeria’s external position,
Egypt’s risk of strikes, riots, and civil commotion risk rating as oil accounts for more than 90% of the country’s total goods
increased from 5.3 to 5.8. This was the eighth-largest rating and service exports. The collapse of global oil prices in the first
increase in the last six months of all 197 countries rated by quarter of 2020 led to the value of Nigeria’s exports contracting
World Risk Review. sharply — falling by 19%. Over the course of 2020, the value of
Nigeria’s oil exports is expected to reduce by USD26.5 billion.

This increased risk is largely due to sporadic protests by health

care workers and activists against the government’s handling of The country’s currency inconvertibility and transfer risk rating
the pandemic. Public hospitals in Egypt have been overwhelmed increased by 0.4, from 6.4 to 6.8, in the last seven months.
with the rate of COVID-19 infections. A disproportionately high Portfolio outflows and reduced export revenues have exerted
number of COVID-19 deaths have been among health care significant pressure on the naira in 2020, leading the central
workers, which will continue to provoke small, sporadic protests bank to cut its official USD exchange rate by 15% in March.
for the duration of the pandemic.
Hard currency shortages are likely to remain throughout 2020,
However, President Abdel Fattah el-Sisi has established a firm as foreign exchange earnings remain suppressed and pent-up
grip on power, and the authorities should be able to manage import demand is released as containment measures are eased.
protest risks. As foreign exchange reserves look set to remain under pressure
in the remainder of 2020, additional capital controls are possible.

12 • Political Risk Map 2020: Mid-Year Update

The risk of social unrest is likely to rise as a result of deteriorating
economic conditions, as the government may be forced to
South Africa
cut expenditure. Although the government has been granted The South African economy was already grappling with a
permission to increase borrowing by USD22.8 billion, a weak number of structural imbalances before COVID-19. The fallout
fiscal and debt position will make it difficult to secure financing from the pandemic will compound these challenges. South
on capital markets. Africa’s GDP is forecast to contract by 7.1% in 2020, as the
pandemic weighs heavily on consumption and activity in key
At the same time, in July, Minister of Finance Zainab Ahmed manufacturing and mining sectors.
indicated that the government met just 56% of its target revenue
collection in the first five months of the year. Emergency IMF South Africa’s country economic risk increased by 0.9, from 4.8
funding of USD3.4 billion will provide some support, but with to 5.7, in the first seven months of 2020 (see Figure 8).
sources of revenue and financing under pressure, it is unlikely
that the government will be able to deliver fiscal stimulus or A sharp decline in trade and tourism revenue and additional
maintain spending at current levels. COVID-19-related spending will put pressure on already weak
public finances. The budget deficit is expected to reach 15.6%
Any cuts to social spending are likely to drive civil unrest, and the of GDP in fiscal year 2020. This will result in a 19% increase in
country’s strikes, riots, and civil commotion rating has already the government debt burden, to 89.9% of GDP by year-end.
increased from 6.7 to 6.8. A number of violent riots have already This outlook contributed to its sovereign credit risk rating
been reported in response to government lockdown measures. increasing from 4.7 to 5.1 between January and July 2020.

COVID-19’s impact in Nigeria will be exacerbated by a Rising sovereign credit risks also stem from the vulnerabilities
challenging investment environment. Long delayed regulatory of South Africa’s struggling state-owned enterprises (SOEs).
reform of the oil and gas sector does not look set to be approved SOEs have a combined debt load of ZAR1.6 trillion, of which
in the near term, discouraging much-needed investment. At ZAR670 billion is guaranteed by the government in the event
the same time, to reduce demand for hard currency, Nigeria has of default. With credit conditions tightening, many SOEs will
taken a protectionist stance to regional trade, restricting certain require government financing assistance over the next few
imports since 2019. In July 2020, the central bank restricted years. This will weigh on public finances and further depress
access to foreign exchange for corn imports. growth heading into 2021 and 2022.

The worsening economic backdrop has also caused concern

among international investors. The South African rand has
FIGURE While some of South Africa’s risks
8 increased in Jan-Jul 2020, others
decreased slightly.
been one of the worst-performing emerging market currencies
in 2020 to date. It lost 19.5% of its value against the US
dollar in the first half of 2020, driving an increase in currency
SOURCE: MARSH JLT SPECIALTY WORLD RISK REVIEW inconvertibility and transfer risk rating from 3.7 to 4.

South Africa’s Country Currency Non-resident sell-offs in rand-denominated portfolio

Risk Ratings Inconvertibility
investments totalled around USD7 billion net, 2.5% of 2020
and Transfer Risk
10 GDP, in the first half of 2020. The second half of the year could
Country 9

Economic 8
Sovereign see economic activity pick up and boost commodity prices, if
Credit Risk
Risk 7 the pandemic is brought under control. This would allow the
6

5
rand exchange rate to strengthen to around ZAR15.75/USD1
4
over 2020.
3
War and
2 Expropriation
Civil War 1

Contractual
Terrorism Agreement
Repudiation

Strikes, Riots, Legal and

and Civil Regulatory
Commotion Risk

Jan-20 Jul-20

Marsh • 13
14 • Political Risk Map 2020: Mid-Year Update
Americas
More than half of countries in the Americas saw their country
economic risk rating increase by more than 1 between January FIGURE Brazil’s economic risk rating saw
and July 2020. Containment measures have frozen economic
activity in many states, while some have faced the added
challenge of collapsing tourism revenues (Jamaica, Bahamas,
9 the only pronounced increase in
Jan-Jul 2020.
and Barbados), or weak global commodity prices (Chile). SOURCE: MARSH JLT SPECIALTY WORLD RISK REVIEW

The countries covered below reflect the diverse approaches to Brazil’s Country Currency
the pandemic taken in the region. In Brazil, political dynamics are Risk Ratings Inconvertibility
and Transfer Risk
dominated by President Jair Bolsonaro’s laissez-faire approach 10

Country
to the virus, which has contributed to his political isolation. In Economic
9
Sovereign
8
Credit Risk
Mexico, the government has bucked a global trend of large Risk 7

6
stimulus measures, instead promoting austerity. Finally, the 5

pandemic complicates Chile’s political environment — lockdown 4

3
measures have slowed protest activity, yet a referendum on the War and
2 Expropriation
Civil War 1
constitution due in October may yet yield fresh instability.

Brazil Terrorism
Contractual
Agreement
Repudiation
Brazil’s political environment in 2020 will be characterized by
President Jair Bolsonaro’s handling of COVID-19. The country
Strikes, Riots, Legal and
recorded the second-highest number of reported COVID-19 and Civil Regulatory
Commotion Risk
cases and deaths worldwide in the first six months of 2020. It
faces a challenging economic outlook, with the public health
crisis and political dynamics likely to mean that an economic
Jan-20 Jul-20
recovery will not occur until 2021.

The trajectory of COVID-19 cases in Brazil indicates that the peak

of the health crisis is still to come, which will disrupt a resumption
in economic activity in the second half of 2020.

Marsh • 15
Bolsonaro has been criticized for the government’s handling of
the pandemic, leading to the departure of several political allies. FIGURE Chile’s strikes, riots, and civil
Politically isolated, Bolsonaro will struggle to build consensus with
the Brazilian Congress, thereby reducing the likelihood that the
government will be able to pass a fiscal reform agenda this year.
10 commotion risk increased more
than any other country rated in
Jan-Jul 2020.
Expropriation risks should remain low, given the government’s SOURCE: MARSH JLT SPECIALTY WORLD RISK REVIEW
ideological commitment to privatization. However, divestments
are likely to be delayed by the pandemic.
Chile’s Country Currency
Risk Ratings Inconvertibility
and Transfer Risk
Brazil’s country economic risk rating increased from 4.4 to 5.4 in 10

the first seven months of 2020 (see Figure 9). GDP contracted by Country 9

Economic Sovereign
8
Credit Risk
1.5% in the first quarter of 2020. But the depth of the crisis was Risk 7

6
felt in the second quarter: Industrial production decreased by 5

18% in April, following a 9% decline in March. 4

3
War and
2 Expropriation
Civil War 1

Business and consumer confidence has also fallen below the

levels seen during the 2015-16 economic recession. Risk aversion
in global capital markets have put pressure on the Brazilian
Contractual
real, which has depreciated by 33% against the US dollar since Terrorism Agreement
the beginning of 2020. In the next six months, the currency Repudiation

will continue to underperform as a weak external environment

weighs on export demand and investment. Brazil’s currency
Strikes, Riots, Legal and
inconvertibility and transfer risk rating increased from 4 to 4.4 and Civil Regulatory
Commotion Risk
between January and July 2020.

Brazil’s full-year GDP is forecast to contract by 5.2%, given the Jan-20 Jul-20
dramatic disruption to production and consumption in 2020.
Falling revenues and a large fiscal stimulus package will weaken
government finances, with the fiscal deficit surpassing 10% of
GDP and government debt increasing to around 90% of GDP,
Further anti-government protests, and clashes with the police,
up from 76% of GDP in 2019.
are likely in the coming months as COVID-19 curfews are eased.
Many of the socioeconomic drivers of 2019’s unrest remain
On the external front, Brazil faces a global recession, unaddressed, and the pandemic is likely to increase pressure
weaker commodity prices, and tightening credit conditions. for social reforms, as weaknesses in the health care system are
Nevertheless, Brazil’s external risks remain limited due to a exposed and unemployment levels rise. Chile is due to hold a
strong international reserve position of over USD350 billion constitutional referendum on October 25, 2020, which could
(around 20 months of import cover), which provides sufficient become a flashpoint for protests.
liquidity coverage to withstand external financial shocks.

Protests have the propensity to turn violent, with looting of

supermarkets and commercial stores a risk. However, given
Chile concerns over social distancing, anti-government protests are
unlikely to attract the sustained support that characterized the
Chile’s strikes, riots, and civil commotion risk rating increased
social unrest in Chile during the fourth quarter of 2019.
by 0.5, from 6.1 to 6.6, in the first seven months of the year (see
Figure 10). This was the largest increase in that risk among all
rated countries. Chile’s country economic risk rating increased by 1.6, from 2.9
to 4.5, in the first seven months of 2020. This was the largest
such increase in Latin America. The COVID-19-related disruption
Following unrest in the fourth quarter of 2019, lockdown
to key sectors, such as mining and tourism, will cause GDP to
measures precipitated violent protests in Santiago’s low-income
contract by 4.6% in 2020, before rebounding in 2021.
neighborhoods, as shortages of basic goods occurred. In May
2020, protesters erected roadblocks in the neighborhoods of Lo
Prado, La Pintana, Maipú, and Ñunoa. Three separate incidents President Sebastián Piñera announced three months of fiscal
of arson targeting public transport were recorded in the Santiago stimulus in June 2020, expected to total 10.2% of GDP (USD28.8
neighborhoods of Villa Francia and La Pincoya. billion). Chile will partly finance additional spending through
the issuing of new debt, which is forecast to double from
approximately 20% of GDP in 2019, to 40% of GDP in 2021.

16 • Political Risk Map 2020: Mid-Year Update

However, Chile will benefit from relatively low borrowing costs
on capital markets, ensuring that its sovereign credit risk has
Mexico
only moderately increased from 2.4 to 2.6 in 2020 to date. Mexico’s economy has suffered from the triple shock of COVID-
19, low global oil prices, and a collapse in US consumer demand
Chile’s structural dependence on commodities will impede a in 2020. Its country economic risk rating increased from 3.8 to
quick recovery. Copper continues to represent close to 50% 4.6 in the first seven months of the year (see Figure 11).
of its exports. Following an outbreak of COVID-19 in Chile’s
northern mining region, a state-owned mining firm suspended In the first quarter of 2020, GDP contracted by 1.6%. Over the
construction at several of its facilities in June 2020, as did full year, GDP is forecast to contract by up to 8.8%, although a
several private sector mining firms. In August 2020, the firm deeper contraction remains possible. Mexico’s trade relationship
announced the first stages of recommencing these projects with the US is crucial to the country’s overall economic health. The
as the country begins to ease lockdown restrictions in certain two countries are each other’s largest commercial trade partners:
communities. The pandemic weighed on Chile’s exports in Bilateral trade reached a record USD614.5 billion in 2019.
the first half of 2020, widening the current account deficit to
around 3.4% of GDP by year-end 2020. However, Chile’s large In 2020, the COVID-19-related closure of factories that connect
stock of international reserves, and increased copper demand value chains between Mexico, the US, and Canada will negatively
from China, should relieve pressure on the balance of payments affect production and exports in key sectors such as electronics
in the second half of 2020. and automobile manufacturing. In the first quarter of 2020,
industrial production posted a 3.2% year-over-year contraction.
Chile is due to hold a referendum on constitutional changes in At the peak of the COVID-19 crisis in Mexico, from March to April,
October 2020, generating some uncertainty over the country’s exports declined from around USD20 billion to USD12.5 billion.
business-friendly operating environment and legal framework.
The referendum follows 2019’s civil unrest, which renewed In contrast to many governments globally, the federal government
focus on social policies, instead of pro-business reforms. The has not offered a large fiscal stimulus package in response to
referendum will see voters decide if the country should develop COVID-19’s economic impact, instead promoting fiscal austerity.
a new constitution, and who should draft it. If citizens decide to The federal government has rejected proposals for additional
progress with a new constitution, it would not be in effect until support, including a temporary reduction in VAT. The absence
at least 2022. of government support could be another shock to the Mexican
economy, and is likely to prolong the economic downturn.

FIGURE Most of Mexico’s risks saw some However, the United States-Mexico-Canada Agreement

11 increase in Jan-Jul 2020.

SOURCE: MARSH JLT SPECIALTY WORLD RISK REVIEW
(USMCA) should provide some upside potential to Mexico’s
economy in the coming years. Becoming effective on July 1,
2020, the USMCA replaced the North American Free Trade
Agreement (NAFTA), and will provide certainty to Mexico’s
Mexico’s Country Currency regional trading arrangements in the latter parts of 2020.
Risk Ratings Inconvertibility
and Transfer Risk However, the USMCA contains sunset provisions, requiring joint
Country
10
committees to review its terms every six years. This may lead
9
Sovereign
Economic 8
Credit Risk
to renewed bouts of trade uncertainty in the long term.
Risk 7

4
The federal government shows little sign of abandoning anti-
War and 3 business policies, and the policy-making environment will remain
2 Expropriation
Civil War 1 unpredictable in the remainder of 2020. In recent months,
the government has taken a particularly active stance in the
hydrocarbons and power industries, as the federal government
Contractual
looks to promote energy independence from foreign investors.
Terrorism Agreement
Repudiation
The federal government aims to boost the state’s role in the
sector, while reducing the role of private investment, which has
Strikes, Riots, Legal and grown since Mexico’s historic energy reforms in 2014. An April
and Civil Regulatory
Commotion Risk 2020 directive prevented a number of renewable power plants
from connecting to the state-operated electricity grid, stating
that they did not contribute sufficiently to transmission costs. As
Jan-20 Jul-20
a result, Mexico’s legal and regulatory risk rating increased from
5 to 5.2 between January and July 2020.

Marsh • 17
18 • Political Risk Map 2020: Mid-Year Update
ABOUT THIS REPORT
This update to the Political Risk Map 2020 draws upon data
from the Marsh JLT Specialty’s World Risk Review platform.
Our country risk platform provides risk ratings for 197
countries across nine perils covering the security, trading,
and investment environments. Ratings are updated on a
monthly basis, and work on a 0.1-10 scale. 10 represents the
highest risk, 0.1 the lowest risk.

For more information on how you can receive trial access

to World Risk Review, please contact Eleanor Smith at
[Link]@[Link].

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Marsh • 19
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GLOBAL NORTH AMERICA UK & IREL AND

STEPHEN KAY CHRISTOPHE LETONDOT MATT STRONG
Global Coordinator Regional Leader Regional Leader
Political Risk Insurance Credit Specialties Credit Specialties
+1 212 345 0923 +1 (646) 789 3837 +44 207 558 3609
[Link]@[Link] [Link]@[Link] [Link]@[Link]

ASIA CONTINENTAL EUROPE L ATIN AMERICA AND CARIBBE AN

ROBERT PERRY PETER KERKHOFF HERNÁN D. MONROY URIBE
Regional Leader Regional Leader Regional Leader
Credit Specialties Credit Specialties Credit Specialties
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[Link]@[Link] [Link]@[Link] [Link]@[Link]

MIDDLE E AST AND AFRICA PACIFIC

PIETER DINGEMANS META HUDSON
Regional Leader Regional Leader
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+27 110 607 809 +61 (406) 745 686
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